Pakistan’s fiscal sector encountered a series of daunting challenges during the financial year 2022-23. These challenges, stemming from a variety of factors, placed significant pressure on the nation’s economic stability. However, the government has outlined a comprehensive strategy for fiscal consolidation while also prioritising social protection measures during the fiscal year 2023-24. In FY23, Pakistan grappled with several expenditure challenges. Massive floods necessitated substantial government spending on urgent relief and rehabilitation efforts. Furthermore, an increase in the policy rate resulted in higher markup payments, adding to overall expenditure pressures. These challenges on the expenditure front created a complex fiscal landscape that demanded careful navigation.

On the revenue side, implementing an import compression policy in FY23 had a profound impact. While it aimed to address trade imbalances, it substantially reduced revenues from import-related taxes. Additionally, a significant decline in Large-Scale Manufacturing (LSM) activity further strained the fiscal situation by reducing industrial contributions to the national treasury. These combined factors led to a substantial reduction in overall tax collections. The fiscal deficit in FY23 reached a noteworthy 7.7% of GDP, significantly higher than the previous year’s budget projection. This heightened fiscal deficit underscored the urgency of restoring fiscal stability and stimulating economic growth.

Looking ahead to FY24, the government has unveiled an ambitious budget strategy. This strategy prioritises fiscal consolidation efforts aimed at addressing challenges on both the revenue and expenditure fronts. The primary objective is to achieve a primary surplus of 0.4% and reduce the fiscal deficit to 6.5% of GDP. To attain these targets, the government emphasises effective resource mobilisation through various tax measures. Simultaneously, it intends to implement stringent expenditure controls through austerity measures. These actions are essential to bring the fiscal deficit back to a sustainable level. In addition to fiscal consolidation, the government is committed to safeguarding vulnerable segments of society. This commitment includes expanding social safety nets and ensuring targeted subsidies. These measures are designed to mitigate the impact of policy changes on lower-income individuals.

Dr Javed, an economist at the Ministry of Planning, Development & Special Initiatives, said: “The fiscal challenges faced by Pakistan in FY23 were indeed formidable, with natural disasters and economic shifts playing a significant role. The government’s emphasis on fiscal consolidation is a prudent step, but it must be complemented with careful consideration of its impact on the most vulnerable in society. Balancing fiscal discipline with social safeguarding measures will be the key to ensuring a sustainable and equitable recovery.”

Credit: Independent News Pakistan (INP)